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In May 1959, when Harry Cunningham became president of Kresge, the variety store chain (originally founded in 1897) was second only to Woolworth. In the next few years, Cunningham transformed Kresge (with 803 stores in operation) into the largest discount store in the United States and renamed it Kmart. The decision was a particularly difficult one because, as Cunningham explained, “Discounting at the time had a terrible odor. . . . If I had announced my intentions ahead of time, I never would have made president.”1 Yet the move into discounting rejuvenated the company, and by 1976, Kmart had almost twice the sales volume of Woolworth and was only second behind Sears in general merchandise retailers.

From 1984 to 1985, Intel decided to exit from the dynamic random access memory (DRAM) business and wholly embrace microchips based on the x86-CISC architecture. The decision completed the company’s transformation from a memory company into a microprocessor company — a move so radical that a mid-level manager commented: “It was kind of like Ford getting out of cars.”2 The move put Intel on an exponential growth curve; in 1996, the company announced record profits of $5.2 billion on sales of $20.8 billion.

In 1989, when Denis Cassidy took over as chairman of the Boddington Group plc, the company was a vertically integrated beer producer that owned a brewery, wholesalers, and pubs throughout the United Kingdom. In the next two years, Cassidy set about transforming the company into a “hospitality” organization. He sold the brewery and diversified into restaurants, homes for the elderly, and hotels, while keeping the portfolio of large managed pubs. “The decision to sell the brewery was a painful one, especially since the brewery has been part of us for more than 200 years,” Cassidy explained. But the move resulted in the creation of enormous shareholder value, especially when compared with the strategies of other regional brewers in the United Kingdom.

In 1989, Peter Schou, CEO of a small Danish bank called Lan & Spar, set about transforming the bank from a general-purpose, traditional savings bank into a focused, low-cost direct bank. The bank targeted professional retail customers and encouraged them to do their banking via phone, fax, and mail. Within three years, its market share had tripled.

3. The answer, according to Michael Porter, is no. He describes how Continental Airlines tried to play both games by maintaining its position as a full-service airline while creating a new service dubbed Continental Lite to imitate the strategy of Southwest. This venture failed, suggesting that “positioning trade-offs deter straddling or repositioning, because competitors that engage in those approaches undermine their strategies and degrade the value of their existing activities.” See:

4. Earlier attempts by IBM to play both games simultaneously (through a direct-sales operation called Ambra) had failed. For a fascinating discussion on how IBM, Compaq, and HP are now trying to imitate Dell’s position (without abandoning their current position), see: